ICAI Suggests Major Tax Reforms Ahead of Union Budget 2026-27
The Union Budget 2026 is set to be presented on 1st February 2026 by the Finance Minister Nirmala Sitharaman. With only a few days left for the Budget 2026, the Institute of Chartered Accountants of India (ICAI) has shared a detailed set of tax reform suggestions with the government in its Pre-Budget Memorandum. This proposal focuses on making the tax system simpler, encouraging sustainable growth, and supporting India’s journey towards a resilient and green economy.
The recommendations were submitted in November 2025 and covered many areas, such as direct taxes, international taxation, compliance processes, litigation reduction, macro-level policy changes, and amendments to the Income Tax law. As per ICAI, the proposals aim at easing the tax burden on taxpayers, curbing tax evasion, and boosting the tax collection efficiency. Let us understand the key recommendations given by ICAI.
Steps to Simplify Compliance
The ICAI recommended the introduction of a year-wise electronic tax ledger. This will help in tracking TDS, TCS, and advance tax payments and adjust them easily against the tax liability.
To reduce the compliance burden on the taxpayers, the ICAI also suggested relaxing the rules for making payments to non-residents, eliminating the requirement of TAN for transferees paying non-residents, and removing the TCS on the sale of scrap.
Focus on Reducing Litigation
One of the main recommendations given by ICAI is to cut down on tax-related litigation. The institute has suggested that the government remove prosecution provisions and dual penalties for the same mistake. It has also been suggested that the return should be processed only when there are arithmetical errors and incorrect claims.
ICAI has also proposed that guarantee fees should not be treated as interest for the purpose of interest deduction limits.
Steps to Widen the Tax Base and Boost Tax Collection
The ICAI has suggested excluding the Futures and Options (F&O) trading and speculative business from the presumptive taxation to improve tax collection. Further, the institute recommended compulsory return filing for individuals who own a large agricultural land, which would help in widening the tax base.
The institute also proposed to introduce an optional joint taxation scheme for married couples and mandatory audits for all profit-related deduction provisions.
Rationalisation of Tax Provisions
ICAI has proposed allowing deductions for health insurance premiums and expenses for dependent persons with disabilities. It has also sought a higher surcharge threshold and more clarity on surcharge calculations.
ICAI noted that many of its past suggestions have already been accepted, with several recommendations included in the Income Tax Act, 2025, which will take effect from April 1, 2026.
